Regular readers know I've been hating on Groupon ($GRPN) since before the IPO, I made it pretty clear that I was not a fan of the model or the opportunity for a daily deals stock. I had some great intel from merchants who used the service and salespeople from competitors about why this should never have been a multi-billion dollar company.

Morningstar put out a piece of research on the stock this morning that I thought cut right to the heart of the matter - the barriers for competition are effectively zero...

Groupon's Business Can Easily be Replicated We believe that Groupon is primarily a local e-mail marketing company that is hoping to transform into a local advertising powerhouse. This potential opportunity is not lost on the market, as companies including LivingSocial, Travelzoo (TZOO), Amazon.com (AMZN), OpenTable (OPEN), and Google (GOOG) have launched daily deal services as well. Although Groupon has incredible brand recognition, it's not clear to us why merchants would avoid using the competition, particularly if they receive other services or better terms.

Thoughts on the Economic Moat In our view, Groupon has not carved out an economic moat. We cannot attribute any of our five defined sources of an economic moat to Groupon's business at this point in time:

Customers and merchants have no switching costs. Consumers typically subscribe to multiple e-mail lists, and we believe that the value of the deal and the quality of the merchant drives the transaction, not the company that e-mails the offer.

The firm also does not have a cost advantage. The company has built an e-mail subscriber list and runs a call center to call local businesses to run "Groupons." Unless the company can develop a low-cost way for "self-service" advertising by local merchants that is superior to the competition, we cannot envision any cost advantage that Groupon could construct. Furthermore, we think that competitors who sell other ad products to the same merchants may put Groupon at a competitive disadvantage.

The firm has no meaningful intangible assets, and it doesn't enjoy network effects. Groupon is essentially a sales agent and intermediary between local merchants and consumers. Consumers are free to use competitors such as LivingSocial, Amazon Local, or Travelzoo's Local Deals and gain little to no benefit from using Groupon repeatedly. Moreover, LivingSocial has shown no signs of slowing growth although it has a smaller base of merchants and customers.

The rest of the report concerns valuation and "weak economies of scale. It's behind a paywall at Morningstar but if you want to sign up for Morningstar StockInvestor, it's $109 for the year (12 issues).